LO.4 (ROI) Spruce Enterprises operates a chain of lumber stores.In 2008, corpora
ID: 2434088 • Letter: L
Question
LO.4 (ROI) Spruce Enterprises operates a chain of lumber stores.In 2008, corporate management examined industry-level data anddetermined the following performance targets for lumber retailstores:
Assetsturnover 1.7
Profitmargin 80%
The actual 2008 results for the company’s lumber retailstores follow:
Total assets at beginning ofyear $10,200,000
Total assets at end ofyear 12,300,000
Sales 28,250,000
Operatingexpenses 25,885,000
a. For 2008, how did thelumber retail stores perform relative to their industry norms?
b. Where, as indicated by theperformance measures, are the most likely areas to improveperformance in the retail lumber stores?
c. What are the advantagesand disadvantages of setting a performance target at the start ofthe year compared with one that is determined at the end of theyear based on actual industry performance?
Explanation / Answer
Profit = Sales - Op exp = 28,250,000 - 25885000 =2,365,000 Profit margin = Profit/Sales = 2365000/28250000 = 8.37%
So Lumber store had a poor profit margin but good assetturnover ratio as compare to Industry norms b. Lumber store need to reduce operating expenses as Sales aregood as can be seen by Asset Turnover ratio
c. Once u set a perf target at start of year, you can track urperf during the year & take corrective action to ensure that umeet your targets. If u set the targets at end of year, it is too late to takeany corrective action
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